After Cuts, New Mexico Now Has Budget Surplus

Our periodic look at state finances takes us next to New Mexico. The situation there looks a lot less awful than it did.

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After three years of painful cuts, the state has a projected surplus. The question now is what to do with the money. Here's NPR's Ted Robbins.

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TED ROBBINS, BYLINE: The Santa Clara Pueblo dancers are on the floor of the New Mexico legislature to celebrate the state's 100th anniversary. They could just as well be celebrating the fiscal turnaround - which the nation's first Latina governor, Republican Susana Martinez, told legislators about in her State of the State address.

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GOV. SUSANA MARTINEZ: In fact, our historic deficit has now become a projected $250 million surplus, in one year.

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ROBBINS: The cash comes largely from increased sales tax revenue. Of course, after so much budget cutting over the last three years, it doesn't take much of an increase to put the state in the black. New Mexico is a poor state. It ranks low in education, and high in poverty. So Martinez recognizes the need to restore some spending.

MARTINEZ: That's why my budget invests $45 million more in Medicaid, providing health care for the poor and the disabled.

ROBBINS: Martinez wants to modestly increase funding for education, too. But she also wants to give $55 million in tax breaks to military retirees, small-business owners and construction companies. Many of the Democrats who control the legislature agree with the spending increases. In fact, sitting in his Capitol office a floor below the governor, progressive Democratic State Senator Peter Wirth says he wants even more money spent on education, health care and state employee salaries. Wirth doesn't want the tax breaks.

STATE SEN. PETER WIRTH: I just think that it's irresponsible to continue doing what got us into this mess - which is to narrow and narrow the base, more and more exemptions, more and more deductions.

ROBBINS: When Wirth says continue doing what got us into this mess, he's talking about big tax cuts given last decade, when times were good - at the request of Democratic Governor Bill Richardson. Wirth wants to end tax exemptions and loopholes, which he says would make large corporations and wealthy New Mexicans pay more. But there's one industry which affects the state's bottom line more than any other.

STATE SEN. JOHN ARTHUR SMITH: Oil and gas is definitely the wild card.

ROBBINS: New Mexico is an oil and natural gas producer. The state gets royalties from energy companies. But as Senator John Arthur Smith points out, the amount depends on oil and gas prices.

SMITH: We had almost a billion-dollar windfall when natural gas was in the $10 to $11 range. And now, it's collapsed down to below $3.

ROBBINS: Remember when Governor Martinez said New Mexico has a $250 million surplus? Well, that's a projection. Smith, a moderate Democrat, says instead of tax cuts or major spending, the state should keep more money as cash reserves, in case the projections are wrong. In the past, Smith, who heads the legislative finance committee, accomplished that. He says those reserves are the real reason the budget is in better shape now.

SMITH: New Mexico is in better financial condition than about 37, 38 other states.

ROBBINS: Whatever New Mexico does with it, more money is a good problem to have.